I got a very valuable reminder of the sheer unpredictability of the share market yesterday. An extremely high conviction long term US holding of mine, The Trade Desk, reported its Q4 results.

Revenue of $741 million fell short of the company's target (and hence analyst expectations) of $760 million. Revenue for the full year was $2.4 billion, growing nearly 26% year over year, and generating free cash flow of $630 million. The company has no debt. EPS in the quarter at $0.59 actually exceeded analyst expectations of $0.57.

The company CEO and founder Jeff Green not only took ownership of the revenue shortfall, but spent the first 10 minutes of the investor call apologizing for it - the first time in 8 years that the company hadn't delivered on its own forecast - and explaining that the miss was because “we stumbled due to a series of small execution missteps” whilst the company had been busy with its largest ever organisational restructuring to enable it to better scale to meet the large opportunity that it sees in front of it. This opportunity is getting bigger and growing faster than previously expected.

After this refreshingly frank mea culpa, the CEO went on to enumerate 15 - yes 15 - ‘big things’ that the company would be focussing on in the current financial year to capitalise on the secular tailwinds that it has identified.

Not surprisingly the company lowballed its outlook for the next quarter: “We expect revenue to be at least $575 million, reflecting 17% year-over-year growth.”

I am flabbergasted that a 2.5% shortfall in revenue against forecast for the quarter, combined with an understandably cautious forecast for the next quarter, sent the share price tumbling 33%! It is almost as if the company has been written off as ex-growth, despite all the ample narrative to the contrary in the investor call.

I can only guess that algorithmic trading is responsible for this kind of huge volatility. Since I now live off my investment returns, I have started to build up a cash buffer such that I can sustain my lifestyle for 3 years without needing to sell any shares. I have been cautiously nibbling away at selected holdings - usually the ones at all time highs - to generate cash, but I haven't been in a rush to do this, thinking we may have another year or more of irrational exuberance ahead of us, thanks to the Trump wildcard.

This latest development has been a bit of a wake up call for me. I'm going to have to finish putting my 3 year cash buffer in place soon, as a market blow up could happen at any time.

Not a prediction.

Following “The Most Important Thing”, I am currently going through “Mastering The Market Cycle”, by Howard Marks. I had originally wrote a  bit of a rambling post on whether or not we’re in a more long-term geopolitical shift - but who are we plebeians to even consider contemplating such? Instead, I would like to bring my thoughts back to something that is potentially beneficial …taking the temperature of the market.

Although I have, for many years, incoherently stressed over the future economic outlook, now, I actually have a term for it - perhaps if I tell my family I am “concerned over my recent temperature taking of the market”, I will sound more “doctor-y” and they might even entertain my crapola?

Anyway, my mind often wanders to the larger concepts - e.g. is the United States a declining empire? However, these thoughts are relatively worthless, in the event that it takes another few centuries to play out.

So, it seems more beneficial to discuss the relative future, and, if any are willing, please feel free to take the temperature of the market.

Below, I have pasted an internet table containing the factors for consideration. I have also typed my quick (probably dumb) temperature taking of the market below the table. Ultimately, I post this as I feel I am relatively young and inexperienced, and would very much like to understand where I am in the “market cycle”. There is really no way to do this without speaking to, respectfully, those who have more prolonged and extended experience than I.

I encourage anyone to rip my understanding apart and fill in my absent knowledge. Cheers!

(the image appears for me, however, if it does not, please click the following to see article with the table:- https://medium.com/@rhughesjones/howard-marks-on-second-level-thinking-the-role-of-luck-taking-the-markets-temperature-b1ea7f0b2c7b)

Temperature Taking:

• Outlook - rather mixed but still positive and optimistic I’d say.
• Lenders - eager (big question mark, as I am honestly not sure).
• Capital markets - loose, I think.
• Capital - seems plentiful - does not appear to be very scare at all.
• Terms - not sure, depends on the borrower, no?
• Interest rates - the real uncertainty for me. Everyone is currently frothing at the mouth for a rate cut yet, historically, they seem pretty average to me. The generally high debt levels seem to justify this, I suppose.
• Spreads - not sure.
• Investors - appear optimistic and eager to buy, yet there seems to be a sense of caution (but maybe that’s just me).
• Asset owners - certainly still happy to hold, at least in comparison to cash.
• Sellers - few.
• Markets - definitely crowded, in my opinion.
• Funds - not exactly sure.
• Recent performance - very strong/all time highs.
• Asset prices - high.
• Prospective returns - low.
• Risks - high.